Bankruptcy filings up by over 2% in 21 county area

6/4/2013

For the first time since August, 2010, bankruptcy filings in the 21-county territory covered by U.S. Bankruptcy Court in Toledo rose by more than two percent.

In fact, over the last 33 months bankruptcies had only risen twice in the Toledo court — by one percent in February, 2012, and by 2 percent in January of this year.

But in May, cases totaled 532 filings, up from 492 a year earlier, an increase of eight percent. It marked the highest monthly jump in bankruptcies since March of 2010 when filings were up 16 percent from a year earlier.

For the year, bankruptcy filings remain down seven percent from the first five months of 2012. Chapter 7 liquidation cases, which always make up the bulk of monthly filings, are down six percent.

But the sudden rise in filings caught some off-guard and caused local bankruptcy attorneys to speculate on whether the rise may be tied to 2005.

In 2005, pending reform was announced in April, which created an avalanche of filings as debtors tried to take advantage of more lenient laws and lower expenses related to filing before they changed later that year.

All those people who filed in 2005 weren’t allowed to file for bankruptcy again for eight years — in other words, until this year.

In 2005 there were 16,883 cases filed in the Toledo court, the highest on record. In 2004, the second-highest year for bankruptcies, there were 10,623 cases filed.

“When I hear that the filings went up in May, the first thing that comes to my mind is the new bankruptcy law that was passed in mid-April of 2005,” Toledo attorney Gordon Barry said. “There were all kinds of rumors and information that year that you wouldn’t be able to get rid of credit card debts later and that it was going to be pretty hard to file bankruptcy afterwards.

“That’s when the rush of filings took place. For those people who started filing in April, and then in May and June and July 2005, their eight years [of bankruptcy] are expiring and those people are becoming eligible to file again,” Mr. Barry said.

“We had started thinking that more people would be eligible to file and that those numbers might start to go up again,” he said. “It wouldn’t surprise me to see those numbers kick up over the next few months.”

The same thought occurred to local attorney Jerry Purcel.

“At first, I thought the economy was improving, so it kind of surprised me that the numbers would be going up. But then I remembered — this is eight years almost to the day after the 2005 bankruptcy changes were announced,” Mr. Purcel said. “People who filed then weren’t eligible to file again until now, so I think now they’ll be jumping in like crazy. These are mostly second-timers in my opinion.

“I’m absolutely certain that’s what it is and I would also expect that [filings] will be going up for the rest of the year,” Mr. Purcel said.

The theory also makes sense to University of Toledo law professor Kara Bruce, who later this fall will become the American Bankruptcy Institute’s Scholar in Residence and its bankruptcy expert for 2013-14.

“That seems very plausible to me, that you would have many of those people filing now,” she said.

Attorney Stephen Priestap suggested a few other possibilities: tax season and more employment.

“I would say it could have something to do with the fact that we’ve passed tax season. We usually tell people not to file until after tax season, so it could be some of that,” he said. “There was a change in the homestead exemption. It went up to $125,000, so it’s possible that people who may have been borderline with equity on their houses may have been waiting to file and now have.”

With respect to employment, the economy is improving and offering more people a chance to work.

“What I usually see is, when there’s an improvement with the employment situation filings go up because when someone is out of work there’s no need to file. Then when you get back to work you have got wage garnishments waiting for you so you want to file bankruptcy,” Mr. Priestap said.

“But I don’t think there’s been any marked improvement in employment lately,” he added.

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.